Forbes Festivities, a special events planner, uses a 10 year old van to deliver decorations and supplies to customers. The company paid $19.000 for the van, which costs $2.700 per month to operate. In 2 years the van will need an extensive overhaul costing 55 200.
Colin Forbes, the company’s owner, is considering the purchase of a new delivery truck to replace the van. The truck he is looking at will cost $25,000 and has a useful life of 10 years. Based on estimated gas mileage and insurance, Colin calculates that the truck will cost $1.300 per month to operate. It will require a $2,700 overhaul in years. Based on current blue-book values, Colin could sell the old van today for $5,100. He estimates that he will be able to sell the new truck for 57400 at the end of its 10 year life. Identify the amount and timing of the cash flows relevant to Colin’s decision to replace the delivery van (if answer is negative then enter with a negative in preceding the number, – 15,000.) Cash Flow Time Period Purchase price Operating cost savings Overhaul avoided on old van 5 Overhaul on new van Salvage of old van Salvage of new truck $